The global tariff war escalates, causing market turmoil and a surge in the fear index.

In 2025, the global trade pattern is undergoing significant changes. An unprecedented tariff war has erupted, with almost all countries' goods being subjected to at least a 10% tariff. For around 60 countries with a large trade deficit with the United States, even higher tariff barriers are being faced. This measure has caused severe turbulence in the global market, with the main impacts reflected in the following aspects:

1. Rising corporate costs and shrinking profit expectations
2. The global supply chain is severely disrupted, and economic uncertainty is increasing.
3. The risk of trade wars is escalating, and countries may take retaliatory tariff measures.

In this complex economic environment, participants in the capital market are adjusting their investment strategies.

• Reduce allocation to risky assets such as stocks and cryptocurrencies
• Increase the proportion of safe-haven assets such as gold, US dollars, and Japanese yen.
• The expectation of increased market volatility has led to a significant rise in the VIX index.

The chain reaction triggered by tariff increases includes rising costs, disruptions in the global supply chain, heightened risks of retaliation, decreased investment willingness, and movements of risk-averse funds, ultimately leading to a state of panic in the market.

It is worth noting that on April 7, the panic index VIX soared to 60, setting a new historical high. This value is extraordinary; the VIX index has only reached such high levels during three extreme situations in the past, the most recent of which was on August 5, 2024, with the first occurrence traced back to the outbreak of the COVID-19 pandemic in 2020.

The current VIX index has reached historically extreme levels, which provides us with important references for interpreting market trends. So, how should we use the VIX index to predict market movements?

VIX Index Analysis

The VIX index is calculated based on the prices of S&P 500 index options and reflects the market's expectations of volatility over the next 30 days. It is widely regarded as an important indicator of market uncertainty and panic.

In short, the higher the VIX index, the more the market expects future volatility to be intense and the stronger the panic sentiment; conversely, the lower the VIX index, the calmer the market is and the stronger the investor confidence. Historical data shows that the VIX index typically spikes during significant stock market declines and retreats when the stock market rises and stabilizes. Due to this inverse relationship with the stock market, the VIX index is also known as the "fear index" or the market's emotional thermometer.

Under normal circumstances, a VIX index below 15-20 is considered to be in a calm range. When the VIX exceeds 25, it indicates that the market is beginning to show obvious panic; if it exceeds 35, it means that the market has fallen into a state of extreme panic. In extreme events such as financial crises or outbreaks of epidemics, the VIX index may even break 50, reflecting a strong risk-averse sentiment in the market. Therefore, by observing the changes in the VIX index, investors can gain insights into the current strength of market risk aversion, providing a reference for adjusting investment strategies.

High Volatility Panic Zone: VIX ≥ 30

When the VIX index rises above 30, it usually indicates that the market is in a state of high fear or panic. This situation is often accompanied by a sharp decline in the stock market, but historical data shows that after extreme fear, the market often rebounds.

Between 2018 and 2024, there have been about a dozen events where the VIX closing price rose above 30 for the first time. Typical cases include the volatility storm in February 2018, the pre-Christmas sell-off in December 2018, the pandemic panic from February to March 2020, the retail investor storm at the beginning of 2021, and the market turmoil at the beginning of 2022 caused by interest rate hikes and geopolitical conflicts.

Data analysis shows that within 7 days after these panic events, the S&P 500 index often experiences a positive rebound. The average increase is about 1.4%, with approximately a 73% probability of an increase within 7 days after the event. This indicates that when the VIX spikes above 30 (entering the panic zone), the stock market tends to see a technical rebound in most cases in the short term.

Bitcoin tends to rebound strongly after extreme panic. Statistics show that the average increase of BTC within 7 days is approximately 10%, with a win rate of around 75-80%. For example, in February 2022, when the VIX surpassed 30 due to a geopolitical crisis, Bitcoin surged over 20% in the following week, demonstrating a rebound phenomenon similar to the fading of risk aversion in the stock market.

Extreme Panic Peak: VIX ≥ 40

When the standard is further raised to VIX ≥ 40 (extreme panic), qualifying events are extremely rare during the period from 2018 to 2024. In fact, only on February 5, 2018, and on February 28, 2020, when the pandemic caused a crash, did the VIX close above 40 (for the first time in four years), after which the VIX soared to an unprecedented 82 points in March.

Due to the extremely limited sample size, the statistical results are only for reference: after the event in 2020, the S&P 500 index slightly rose by about 0.6% within 7 days (the market experienced significant fluctuations that week but had a slight technical rebound), while BTC rose by about 7%. In terms of win rates, both are 100%, but this is solely due to the rise from a single event (which does not guarantee a rise in future similar situations). Overall, when the VIX reaches historical extreme values above 40, it often indicates that the market's extreme panic selling pressure is nearing its peak, and there is relatively high potential for a short-term rebound; from a larger cycle perspective, these are generally relative lows.

Although statistically, the short-term performance after extreme panic is biased positively, the small sample size means high uncertainty, and at that time, the correlation between Bitcoin and the US stock market was not as highly aligned as it is now. In practice, a VIX above 40 is more of a signal confirming that the market is in a state of extreme panic, and future market trends still need to be judged in conjunction with fundamental information.

Low volatility range: VIX ≤ 15

When the VIX index drops below 15, it usually indicates that the market is in a relatively calm state. Investor sentiment is more optimistic, and the demand for hedging is low. However, the subsequent trends at this time are not as consistently clear as they are when VIX is high:

Between 2018 and 2024, the VIX dropped below 15 multiple times, such as after a strong rebound in the stock market at the beginning of 2019, during the stable period at the end of 2019, during the upward phase of the stock market in mid-2021, and in mid-2023. During these periods, market volatility was at historically low levels.

Performance of the S&P 500 Index: In the 7 days following events with extremely low VIX, the average return of the S&P 500 is approximately +0.8%, with a win rate of around 60-75% (slightly higher than random probability). Overall, stock indices in a low volatility environment tend to maintain a slow upward trend or slight fluctuations. For example, in the week following the VIX dropping below 15 in October 2019, the S&P 500 remained stable and slightly reached new highs; when the VIX was around 13 in July 2023, the index continued to rise by about 2% in the following week. This indicates that a low VIX does not necessarily lead to an immediate correction, and the market may continue to maintain an upward trend for a period. However, it is important to be cautious, as extremely low volatility often implies market complacency, and once unexpected negative news occurs, volatility and declines may significantly amplify.

The price movement of Bitcoin during periods of low VIX lacks a clear direction. Statistics show that its 7-day average increase is only about +2%, with a winning rate of about 60%. Sometimes, the calm periods of low VIX coincide with Bitcoin's own bull market phase (for example, in the spring of 2019, low VIX was accompanied by a significant rise in BTC); however, there are also times when Bitcoin experiences a corrective trend during low VIX periods (for example, in early 2018, when VIX remained low, Bitcoin was in a downtrend following the burst of its bubble).

Therefore, the low VIX does not provide significant predictive value for the subsequent movements of BTC and must be considered in conjunction with the capital sentiment and cycle considerations of the crypto market itself.

In summary, when the VIX is below 15, the S&P 500 tends to continue its existing trend (mostly a slow upward movement), but both the magnitude of the increase and the win rate are significantly lower than the rebounds after panic. Meanwhile, BTC lacks a unified response pattern in this environment, indicating that low volatility in traditional markets does not necessarily mean synchronization with the cryptocurrency market.

Conclusion: Risks and Opportunities Coexist

When the VIX soars to the 30-40 range, there may be short-term risks, but it also contains potential reversal opportunities. BTC usually drops in sync during panic selling pressure, but as panic subsides, the excessive shorts accumulated from the sell-off can easily trigger a strong technical rebound. If we observe that the VIX begins to peak and decline (slowly dropping from 35 to below 30), it may be a potential time to buy BTC in the short term. However, it is essential to assess the severity of the event itself; if a significant financial risk erupts, the market may continue to decline further.

When VIX ≥ 40, it indicates that the market is in extreme panic, including the possibility of liquidity exhaustion and massive capital withdrawal. The probability of a short-term sharp decline in BTC is very high, but often if the panic eases slightly after one or two weeks, the expected rebound in BTC will also be relatively astonishing. In such an environment, it is recommended that short-term speculators maintain a high level of risk control and strictly adhere to stop-losses, because while "licking blood on the knife's edge," profit and risk coexist. From a larger cycle perspective, this is usually a relatively low point.

When VIX ≤ 15, the market is generally in a natural state. Whether BTC rises often depends more on the cryptocurrency market's own cycles, funding conditions, or technical trends. In an excessively calm environment, be aware that once unexpected changes or black swan events occur, VIX can quickly spike, and BTC may drop accordingly. It may be wise to retain a portion of cash/stablecoins as a backup during this period and stay alert to risk developments.

The mid-range of VIX 15-30 is generally regarded as the "normal volatility" range. BTC is similarly influenced by the crypto cycle and macro funding conditions, and at this time, VIX can serve as an auxiliary indicator. If VIX rises from above 20 to close to 30, it indicates that panic is rising, and risk should be managed appropriately; conversely, if VIX gradually falls from 25 to below 20, it shows that panic is easing, and BTC may be relatively stable.

As of now, the VIX is at 50. In the face of uncertainty regarding U.S. tariff policies, market sentiment remains in a state of extreme panic. However, markets are always born from despair.

Looking back at the pandemic period in 2020, the VIX peaked above 80, while the S&P 500 index was around 2300 points. Even after the recent panic sell-off, the S&P 500 is still near 5000 points, achieving over 100% investment returns over five years. During the same period, Bitcoin was at an excellent buying point, priced at only 4800 USD, while the peak of this bull market reached 110,000 USD, with a maximum increase of nearly 25 times.

Each significant drop is often accompanied by market repricing and capital flow, and chaos may become a stepping stone for recovery. Whether this opportunity can be leveraged for leapfrog development is the key challenge faced by investors in the current market environment.